It is important to budgeting to keep good records of what your expenses are. I like the computer program quicken it allows for managing and tracking of multiple accounts and seeing that I have several accounts it works well to keep all of them in the same place. Another important feature it has is categories so when you record a transaction you tell the program what category of spending it should put it in. If you use the categories well you can print a report at the end of a month or week or however you like and it will do the totals for you.
Other options for record keeping are bank statements, credit card statements, and the good old balancing the check book act. The best way to use the bank statements or credit card statements would be if all your transactions went through that account so you can see by looking at one paper what expenses you had in a month. This is a fine method of record keeping but you will need to note what the specific purchases fit under as far as categories and then sum up the categories yourself. For the balancing your check book approach that is something that should be happening anyway to check against your bank account but to keep track of your expenses with pencil and paper can be tedious and falls by the wayside easily if you don't stay on top of it.
I use the computer program approach as I mentioned before, but I mix it with the bank statement approach with access to online banking this lets me check against the banks record and do a day to day balancing act. It is a good idea when using the computer approach to use online banking to your advantage to keep up regularly on spending then at the end of the month you can look at your reports and compare them against your budget or use them to create a budget.
Monday, August 6, 2007
"Wants" Budgeting Technique 1
I learned this technique when I was in a very structured living system with a set amount of money per month and very little variation to my food expenses and other "needs" expenses so they did not change to much. You take the money left after budgeting needs and you divide it evenly by the number of days left in the month. This gives you your daily allowance of spending. You then update this every day accounting for the spending of the previous day. This system can be involved but takes only a couple of minutes in the record keeping process of spending.
Let me run though an example if after I have budgeted the things I need in a month and I have $150. For convenience the month has thirty day then the first calculation I do is 150/30 and I find I can spend $5 a day for the rest of the month and meet my budget. So on the first day of the month I actually was fine to not spend anything that wasn't in my needs budget and so the 2nd day I still have $150/29 and I get $5.17 that I can spend each day now. This is an evidence of the old saying "a penny saved is a penny earned", because in saving my $5 from the first day I gained money for the rest of the days. If I do spend money over my needs budget or that wasn't included in the needs budget I subtract it from my $150 and my daily spending allowance drops.
Some great advantages of this method:
When you account for your daily spending you will become more aware of your spending habits and will see in what ways you can improve.
Saving money can become a fun thing and seeing your daily allowance grow becomes a reward to good spending habits.
If you take the daily approach you can control a day's spending instead of a month at a time and it is easier to control a day than a month.
At the end of the month you will see the rewards of good spending habits or see ways to improve your bad spending habits.
This encourages good record keeping.
Something to keep in mind: any time you go over budget in any category in your needs note that so you can make changes on the next months budget to compensate.
Let me run though an example if after I have budgeted the things I need in a month and I have $150. For convenience the month has thirty day then the first calculation I do is 150/30 and I find I can spend $5 a day for the rest of the month and meet my budget. So on the first day of the month I actually was fine to not spend anything that wasn't in my needs budget and so the 2nd day I still have $150/29 and I get $5.17 that I can spend each day now. This is an evidence of the old saying "a penny saved is a penny earned", because in saving my $5 from the first day I gained money for the rest of the days. If I do spend money over my needs budget or that wasn't included in the needs budget I subtract it from my $150 and my daily spending allowance drops.
Some great advantages of this method:
When you account for your daily spending you will become more aware of your spending habits and will see in what ways you can improve.
Saving money can become a fun thing and seeing your daily allowance grow becomes a reward to good spending habits.
If you take the daily approach you can control a day's spending instead of a month at a time and it is easier to control a day than a month.
At the end of the month you will see the rewards of good spending habits or see ways to improve your bad spending habits.
This encourages good record keeping.
Something to keep in mind: any time you go over budget in any category in your needs note that so you can make changes on the next months budget to compensate.
Budgeting Basics
Well I'll go over some basic budgeting principles in this post. First when we budget we want to have an idea of how much money we have coming in each month, an easy way to get started on this is to check bank statements or go directly to pay stubs. Depending on your employment pay may vary month to month so it is a good idea to check a few months worth of income and come up with an average you are comfortable with. The average is going to be what you are working with in a month. You then take your "needs" expenses out of this income being Rent, Food, etc. also debt payments fall into this category because they need to be paid no matter what. For more on these "needs" expenses check the needs vs wants posts.
So of our income we are going to reduce it hopefully to a positive number. Some challenges occur in the first subtracting step with items like food, because we don't spend the exact same every month depending on sales or appetites or whatever. I like to have an average idea on the food or other varying expenses by checking a few months of spending. This may be difficult if you don't have a record of spending, sometimes bank statements may be helpful for this or credit card statements if you use credit cards and pay them off. I personally like keeping a record using a computer program Quicken that came with my laptop. I will discuss record keeping in a future post. With records of our expenses we should be able to estimate food expense or if car travel is an important part of our lives we could also estimate gas expenses.
I know starting a budget can be hard and the record keeping is a lot of the difficulty so I would suggest getting started with that as soon as possible. Even without it though you should estimate as best you can your varying expenses and subtract them from your income. Now comes a difficult part the "wants" budgeting. I have never been fond of this because it is hard to budget whims or fancies, but there was an involved method I learned once that was an enjoyable way to do this part. I will elaborate in my next post.
So of our income we are going to reduce it hopefully to a positive number. Some challenges occur in the first subtracting step with items like food, because we don't spend the exact same every month depending on sales or appetites or whatever. I like to have an average idea on the food or other varying expenses by checking a few months of spending. This may be difficult if you don't have a record of spending, sometimes bank statements may be helpful for this or credit card statements if you use credit cards and pay them off. I personally like keeping a record using a computer program Quicken that came with my laptop. I will discuss record keeping in a future post. With records of our expenses we should be able to estimate food expense or if car travel is an important part of our lives we could also estimate gas expenses.
I know starting a budget can be hard and the record keeping is a lot of the difficulty so I would suggest getting started with that as soon as possible. Even without it though you should estimate as best you can your varying expenses and subtract them from your income. Now comes a difficult part the "wants" budgeting. I have never been fond of this because it is hard to budget whims or fancies, but there was an involved method I learned once that was an enjoyable way to do this part. I will elaborate in my next post.
Call for Questions
I have been thinking and something that might be nice for readers would be the option of dropping a question and getting an answer so if anyone has questions let me know. Leave a comment on this post or others and I will check them out and if I don't know the answers I will go find them. Thanks
Wednesday, August 1, 2007
Priorities: Need vs Want
This is an introduction topic to budgeting. We always need to have goals in life to know where we are going so eventually we can get there. In financial situations our goals are our priorities. We have the opportunity to establish what we want our money to do for us and then budgeting is the planning to make that happen. With priorities it is also helpful to distinguish what we need and what we want.
Need is a word that to me is about survival day to day being able to wake up in the morning and live until I go to sleep at night. Under this heading we can see that we don't need as much as we might think. To be alive from day to day we definitely need food and water I will give you that. Also other basic needs would be shelter and clothing to protect us from the elements. Do we need electricity or other utilities? I would say that they help a lot with life especially electricity for refrigeration and gas or electricity for cooking, so I will accept basic utilities as a need as well, but they aren't absolutes. Basic utilities would be electricity, natural gas, water, and I would say telephone access of some sort. Telephone would be a need in emergencies more than anything and could be simply assuring that you had access to a telephone in an emergency.
Another set of needs that does not exactly equate survival, but is necessary nonetheless would include such things such as savings. I also believe in charitable actions as being part of this category. In my religion we believe the first priority is our allegiance to God and in my life this has a Need priority. I believe that God wants me to dedicate part of my income to his work so I do that first.
Want is a word that covers the rest of those things we might buy with our money. If I like to watch movies I might want to buy some and start a collection or I might like tv and decide I want cable or satellite service. These are things that might be fun and enjoyable but that I could live without if I needed to. With future posts I will discuss other wants that we might not notice that can help us with budgeting.
With the ideas of need vs want on the table we can prioritize our expenses to make the most of our money. We begin with needs, for my family this would be Tithing (church donation), food/shelter, utilities, and savings contribution. We can then think of how to best prioritize those things that we want or decide to forgo some of our wants to add to those things we need by increasing savings in the form of food storage or monetary savings.
Need is a word that to me is about survival day to day being able to wake up in the morning and live until I go to sleep at night. Under this heading we can see that we don't need as much as we might think. To be alive from day to day we definitely need food and water I will give you that. Also other basic needs would be shelter and clothing to protect us from the elements. Do we need electricity or other utilities? I would say that they help a lot with life especially electricity for refrigeration and gas or electricity for cooking, so I will accept basic utilities as a need as well, but they aren't absolutes. Basic utilities would be electricity, natural gas, water, and I would say telephone access of some sort. Telephone would be a need in emergencies more than anything and could be simply assuring that you had access to a telephone in an emergency.
Another set of needs that does not exactly equate survival, but is necessary nonetheless would include such things such as savings. I also believe in charitable actions as being part of this category. In my religion we believe the first priority is our allegiance to God and in my life this has a Need priority. I believe that God wants me to dedicate part of my income to his work so I do that first.
Want is a word that covers the rest of those things we might buy with our money. If I like to watch movies I might want to buy some and start a collection or I might like tv and decide I want cable or satellite service. These are things that might be fun and enjoyable but that I could live without if I needed to. With future posts I will discuss other wants that we might not notice that can help us with budgeting.
With the ideas of need vs want on the table we can prioritize our expenses to make the most of our money. We begin with needs, for my family this would be Tithing (church donation), food/shelter, utilities, and savings contribution. We can then think of how to best prioritize those things that we want or decide to forgo some of our wants to add to those things we need by increasing savings in the form of food storage or monetary savings.
More on Q and A Session
This is more from our session with our church leader.
Question: Should we be looking at life insurance and what type?
Answer: Especially if you have children you should consider getting life insurance. This is especially important for the bread winner of the family. Term life insurance is a relatively inexpensive way to go because it does not build a cash value.
I will also discuss insurance more later.
Question: Should we have a will?
Answer: The main reason at our age to have a will was to designate guardianship of our children if we did not have a will covering that then the state decides the fate of the children.
Questions were also raised about budgeting and retirement investing.
With budgeting one of the main points was to review a few months statements if using a credit card approach and budget using the past as your guide, be careful with food purchasing a lot of money can be wasted on nonessential foods, start with set expenses such as church/charitable donations, rent, utilities, and others.
With retirement we discussed the approach of starting good habits now, Aiming for home ownership, IRA accounts and a few other things I will discuss in detail later.
We also discussed government aid programs and the opportunities available to get help with medical insurance, grocery shopping, and home buying. These will be other things I will try and cover in depth as well.
Question: Should we be looking at life insurance and what type?
Answer: Especially if you have children you should consider getting life insurance. This is especially important for the bread winner of the family. Term life insurance is a relatively inexpensive way to go because it does not build a cash value.
I will also discuss insurance more later.
Question: Should we have a will?
Answer: The main reason at our age to have a will was to designate guardianship of our children if we did not have a will covering that then the state decides the fate of the children.
Questions were also raised about budgeting and retirement investing.
With budgeting one of the main points was to review a few months statements if using a credit card approach and budget using the past as your guide, be careful with food purchasing a lot of money can be wasted on nonessential foods, start with set expenses such as church/charitable donations, rent, utilities, and others.
With retirement we discussed the approach of starting good habits now, Aiming for home ownership, IRA accounts and a few other things I will discuss in detail later.
We also discussed government aid programs and the opportunities available to get help with medical insurance, grocery shopping, and home buying. These will be other things I will try and cover in depth as well.
Question and Answer Session
I recently had the opportunity to attend a church sponsored session with a leader in our church where he spoke to some young married couples about financial management and I am going to post a few things covered in that here.
He talked about how April showers bring May flowers meaning that the more we can do early in life the more it will help us later on establishing good habits makes a big difference in life.
3 reasons for credit cards
You get a detailed monthly statement which can help you follow your expenses (Useful in Budgeting)
Very convenient to use
Possible minor benefits such as air miles
I would add to this the concept of improving your credit history
Warnings on credit cards, they are one of the worst ways to borrow money, pay them off every month and do so as soon as you get the bill. He mentioned that missing the payment by even a day can bring all sorts of extra charges that may not even make sense as well as raise interest rates on all of your credit accounts not just the one card you missed. There is a term called Universal Default which means for a late bill payment of whatever type be it utility or credit card or whatever interest rates can go up for everything because of 1 missed payment.
Rule of thumb: Don't spend what you don't have
He talked about how April showers bring May flowers meaning that the more we can do early in life the more it will help us later on establishing good habits makes a big difference in life.
3 reasons for credit cards
You get a detailed monthly statement which can help you follow your expenses (Useful in Budgeting)
Very convenient to use
Possible minor benefits such as air miles
I would add to this the concept of improving your credit history
Warnings on credit cards, they are one of the worst ways to borrow money, pay them off every month and do so as soon as you get the bill. He mentioned that missing the payment by even a day can bring all sorts of extra charges that may not even make sense as well as raise interest rates on all of your credit accounts not just the one card you missed. There is a term called Universal Default which means for a late bill payment of whatever type be it utility or credit card or whatever interest rates can go up for everything because of 1 missed payment.
Rule of thumb: Don't spend what you don't have
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